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Germany's DAX benchmark rose 0.2 per cent to above 13,000 points after reversing earlier losses that sent the index down as much as 0.5 per cent. The broader pan-European STOXX 600 index added 0.3 per cent.
German President Frank-Walter Steinmeier was set to meet Merkel for an update on the talks and then make a statement at 1330 GMT.
"We do not expect that there will be a veritable political crisis or a sustainable change of course in German politics," said economist Jan Bottermann of Essen National Bank.
While political uncertainty in Germany did not have a broader market impact there were some stocks in the energy sector that were affected.
A trader said Merkel's failure to form a coalition with the Greens and the FDP could delay a phase-out of coal-fired power production and slow down an expansion of wind and solar energy.
That boosted utility RWE, up 3.4 per cent, which was also supported by dealmaking speculation, and hurt shares in wind power firm Nordex and photovoltaic systems maker SMA Solar, which both fell more than 3 per cent.
Over the weekend, Reuters quoted sources as saying RWE was looking at ways to cut its 16.8-billion euro stake in retail business Innogy, in what could involve a deal with Enel.
Innogy shares firmed 1.3 per cent, while Italy's Enel inched up 0.1 per cent.
The broader marker was also buoyed by a 5.4 per cent gain in Roche after the Swiss-based drugmaker announced two trial wins.
The firm said its immunotherapy Tecentriq, mixed with other drugs, made advances against lung cancer, while data suggested its haemophilia agent Hemlibra could be used by more patients.
"Roche has delivered a best case scenario ... given degrees of market scepticism around both these studies," Jefferies analysts said in a note. Roche shares were on track for their biggest one-day gain since early March.
Altice rose 9.5 per cent after the telecoms and cable company said it was not preparing to raise cash through any equity issue, adding it had no margin loans problems and was working on an asset sale programme to cut its debt.
Among top fallers were Elior, down 4.1 per cent, as brokers slashed their price targets following a disappointing update on Friday from Europe's third-largest catering group.
NEX Group was down 1.9 per cent. The British financial technology company reported a drop in first-half trading operating profit and said market conditions remained challenging due to a lack of volume and volatility.
The STOXX 600 is down 2.8 per cent so far in November as investors have been locking in profits following a strong run. It is still up 6.6 per cent so far this year.